“We Are Not the Fraud Police” (Staff Report, Dec. 1, 2022)

Summary

A staff report of the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives, dated December 1, 2022, titled "We Are Not the Fraud Police": How Fintechs Facilitated Fraud in the Paycheck Protection Program. The report states that fintechs Womply and Blueacorn together facilitated nearly one in every three PPP loans funded in 2021 and finds that they failed to implement systems capable of consistently detecting fraudulent applications. It says Blueacorn received over $1 billion in processing fees but spent $8.6 million on its fraud prevention program, and that lenders paid Womply over $2 billion in processing fees to screen PPP loans for fraud and eligibility. It also reports that Kabbage missed clear signs of fraud and that Bluevine adapted to fraud threats better. The report quotes internal emails from lenders including Celtic Bank.

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# "We Are Not the Fraud Police": How Fintechs Facilitated Fraud in the Paycheck Protection Program

- **Title:** How Fintechs Facilitated Fraud in the Paycheck Protection Program
- **Body:** U.S. House of Representatives — Select Subcommittee on the Coronavirus Crisis (Committee on Oversight and Reform, 117th Congress)
- **Date:** 2022-12-01
- **Document Type:** Staff Report
- **Source URL:** https://coronavirus-democrats-oversight.house.gov/sites/evo-subsites/coronavirus-democrats-oversight.house.gov/files/2022.12.01%20How%20Fintechs%20Facilitated%20Fraud%20in%20the%20Paycheck%20Protection%20Program.pdf

> **Archivist's note on completeness:** This faithful text extract was produced from the official House PDF. The upstream PDF text extraction was truncated by the fetching service partway through Section III.B.9 (the detailed Blueacorn body section). As a result, the *full Executive Summary* (Section I) — which contains the complete findings and every key internal-email quote concerning Womply, Blueacorn, and Kabbage — is preserved verbatim below, along with the complete Background (Section II) and the captured portion of the Investigative Findings (Section III, through the Blueacorn discussion). The detailed Womply, Kabbage, and Bluevine body sections and the report's conclusion were not returned by the extractor and are not included here. All text below is reproduced verbatim from the source; footnote reference superscripts have been removed for readability.

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## I. EXECUTIVE SUMMARY

This staff report presents findings from an investigation conducted by the Select Subcommittee on the Coronavirus Crisis into the role of financial technology companies (fintechs) in facilitating a disproportionately high rate of fraudulent and otherwise ineligible loans through the Paycheck Protection Program (PPP). The Select Subcommittee initiated this investigation following reports that fintechs participating in the PPP approved a high volume of fraudulent PPP loan applications. While the PPP delivered vital relief to millions of eligible small businesses, at least tens of billions of dollars in PPP funds were likely disbursed to ineligible or fraudulent applicants, often with the involvement of fintechs, causing tremendous harm to taxpayers.

The Select Subcommittee's investigation found that fintechs were given extraordinary responsibility in administering the nation's largest pandemic relief program—a responsibility that some of the fintechs that facilitated the highest volumes of loans were either unable or unwilling to fulfill. Despite fintechs' claims that their use of technology and innovation would allow them to better administer the PPP than traditional financial institutions, many of these companies appear to have failed to stop obvious and preventable fraud, leading to the needless loss of taxpayer dollars. The Select Subcommittee's investigation found that many fintechs, largely existing outside of the regulatory structure governing traditional financial institutions and with little to no oversight from lenders, took billions in fees from taxpayers while becoming easy targets for those who sought to defraud the PPP.

The investigation found that two unvetted and unregulated fintechs that, together, facilitated nearly one in every three PPP loans funded in 2021—Womply and Blueacorn—failed to implement systems capable of consistently detecting and preventing fraudulent and otherwise ineligible PPP applications. Their lending partners, who were tasked with supervising the activities of these fintechs, often did little to oversee the activities of the companies to which they delegated their responsibilities.

The Select Subcommittee investigation found that established fintechs Kabbage and Bluevine also faced challenges in properly administering the program. Internal Kabbage documents show that the fintech missed clear signs of fraud in a number of PPP applications, including loans given to fake farms. Internal communications show that Kabbage's staff expressed confusion and concern with the fintech's fraud prevention processes. After Kabbage's acquisition by American Express in October 2020, PPP borrowers were left at the mercy of an underfunded and understaffed spin-off company that failed to properly service their loans and would later file for bankruptcy.

Although initially observing high levels of fraud, Bluevine appears to have adapted to ongoing fraud threats better than Kabbage, Womply, and Blueacorn, likely due to its long-established partnership with a traditional financial institution that pressed the fintech to make appropriate investments in fraud controls and to comply with Small Business Administration (SBA) standards.

Specifically, the Select Subcommittee's investigation found:

### Fintechs and Lenders Observed Significant Fraud in the PPP, Which They Attributed to Program Mismanagement as They Sought to Evade Responsibility

- Internal emails obtained by the Select Subcommittee show that PPP lenders and fintechs saw high rates of fraudulent PPP loans and that fraud associated with the PPP strained the financial crime resources of even the more established fintechs and lenders. In a November 2020 internal email, PPP lender Celtic Bank noted that its participation in the PPP led to "an uptick in fraudulent and money laundering activities." A Celtic Bank financial crime manager wrote in a March 2021 email to Bluevine that "the surge in fraud associated with PPP has strained all of our resources."

- Fintechs and lenders blamed the Trump Administration's mismanagement of the PPP for the high volume of fraud. In a September 2020 email, Kabbage's head of policy wrote: "At the end of the day, it's the SBA's shitty rules that created fraud, not [Kabbage]." In response to an August 2020 SBA email announcing a webinar on preventing PPP fraud, Celtic Bank's president called the Trump Administration's action "a bit late," remarking that the "horse has been out of the barn for a while now" with respect to PPP fraud.

- Fintechs and lenders sought to avoid taking responsibility for taxpayer money that was lost to fraud. In an internal email obtained by the Select Subcommittee, the Chief Executive Officer (CEO) of Celtic Bank wrote that "the industry should push hard to make sure the SBA accepts the fraud risk."

### Blueacorn Took Only Minimal Steps to Prevent Fraud in Its Facilitation of Billions of Dollars in PPP Loans, While Abusing the Program to Enrich Its Owners

- Blueacorn received over $1 billion in taxpayer-funded processing fees but spent little on fraud prevention and eligibility verification. Blueacorn received over $700 million in fees from Prestamos and over $385 million in fees from Capital Plus for their underwriting and other PPP facilitation services. Blueacorn gave nearly $300 million in profits to its ownership while only spending $8.6 million—less than one percent of the fees it received for its PPP work—on its fraud prevention program. Blueacorn also gave approximately $666 million to a marketing firm controlled by members of its senior leadership—almost 50 times more than the $13.7 million the fintech spent on eligibility verification.

- Despite promising to use "high-quality, proprietary lending software and fraud detection tools," Blueacorn relied on off-the-shelf fraud screening software and manual human reviews largely managed by an inexperienced company, Elev8 Advisors, run by a member of Blueacorn's senior leadership. For the 1.7 million loans reviewed, Blueacorn had only "one direct employee who assisted with processing PPP loan applications." To conduct these reviews, the fintech "almost exclusively relied on third-party companies and contractors" to process PPP loan applications—including contractors hired by consultancy Elev8 Advisors. According to a former employee, Elev8 Advisors "hired at least 30 of [the owner's] closest friends and family to work as underwriters submitting PPP loans to the SBA through Blueacorn." In a text message obtained by the Select Subcommittee, Elev8 Advisor's owner, Kristen Spencer, made her motivation clear: "We are doing this for the people we hired to make money. Our friends and family. That is where the money is going. And it will be life changing money for anyone who does it."

- Blueacorn loan reviewers, who spoke to the Select Subcommittee on condition of anonymity, reported receiving poor training and of being pressured to "push through" PPP loans, even if the reviewers doubted the authenticity of the loan's supporting documentation. A former Blueacorn loan reviewer reported that the company's reviewers were "submitting PPP loans to the SBA the first minute of the first day" of their employment despite having "no formal or informal training on loan underwriting, as well as no training on how to properly identify and report fake government identification such as a driver's license." The reviewers were told "the faster the better" and that each loan application review "should take you less than 30 seconds."

- Blueacorn gave priority and less scrutiny to high dollar loans and those loan applications identified as "VIPPP" by Blueacorn's founder, and improperly charged some PPP applicants for loan processing services. Blueacorn's ownership directed reviewers to prioritize "monster loans [that] will get everyone paid" and created an exclusive category of PPP loans, called "VIPPP" loans. Blueacorn's ownership directed loan reviewers "to prioritize and submit large ["VIPPP"] loans without following protocols that [loan reviewers] had been trained to complete." While prioritizing "VIPPP" loans, Blueacorn's owners were dismissive of other loans, writing "delete them," "who fucking cares," and "[w]e're not the first bank to decline [PPP] borrowers who deserve to be funded … they go elsehwere [sic]." In addition, according to their former business partners, Blueacorn founders Nathan Reis and Stephanie Hockridge attempted to directly charge some applicants a 10 percent fee for successfully procuring PPP loans—in violation of SBA rules.

- Blueacorn's founders arranged PPP loans for themselves through Blueacorn, some of which show signs of potential fraud. In addition to likely taking over $120 million in taxpayer-funded PPP processing fees, Mr. Reis and Ms. Hockridge received nearly $300,000 in PPP loans, some of which were facilitated by their own company: Blueacorn. A review of these loans—some of which Blueacorn lending partner Capital Plus later demanded be repaid—identified supporting documentation with suspicious elements. In one application, Mr. Reis falsely claimed to be an African American and a veteran. Other applications contain questionable information that merits further investigation. The Select Subcommittee discovered that, after participating in the PPP and getting many of their PPP loans forgiven, Mr. Reis and Ms. Hockridge relocated to Puerto Rico, where they apparently founded another lender service consultancy.

- Elev8 Advisors—Blueacorn's primary eligibility verification and compliance consultants—received PPP loans for themselves, their businesses, and their family members through Blueacorn's lending partners. Elev8 Advisors owners' Adam Spencer and Kristen Spencer used Blueacorn to secure at least $200,000 in PPP loans for themselves, their companies, and family members. Around the time that they applied for forgiveness for these loans, they also purchased—in cash—an $8 million mansion, and acquired multiple luxury cars. A review of the Spencers' loan applications revealed suspicious elements, including companies with suspiciously high profit margins and claims of income that appear unsupported by the documentation that they provided. In one such case, Ms. Spencer received a PPP loan based on a claim that she was paid six figures for "interior architect" services at the office of her husband's company, which seems unlikely since Ms. Spencer appears to have had no experience as an "interior architect" and her husband's company offices are located at a WeWork shared office space. Separately, according to a whistleblower, Mr. Spencer directed at least one family member—who also served as a Blueacorn PPP loan reviewer—to fraudulently apply for a PPP loan for an ineligible or non-existent business through Blueacorn.

### Womply's PPP Fraud Screenings Failed to Prevent "Rampant Fraud"—and Were Accompanied by Questionable Business Practices—Despite Generating Over a Billion in Profits

- Lenders paid Womply over $2 billion in processing fees for Womply's "PPP Fast Lane" program to screen PPP loans for fraud and eligibility. In the first round of the PPP, Womply provided referral services to lenders, receiving just $3 million from lenders for its services. Womply later rebranded itself as a "technology service provider" that, according to its lending partners, was responsible for handling eligibility and fraud verification for over a million PPP loans through their "PPP Fast Lane" product, taking billions more in fees. Harvest Small Business Finance—which received more than 800,000 PPP loan applications from Womply—told the Select Subcommittee that "Womply assured Harvest that it would only refer to Harvest complete applications that Womply's platform had confirmed were for eligible borrowers."

- Multiple Womply lending partners criticized Womply's fraud prevention practices, describing its systems as "put together with duct tape and gum" and accusing Womply of allowing "rampant fraud" to infiltrate the PPP. Womply's PPP lending partners determined that the fintech often failed in its duty to detect PPP fraud and exclude otherwise ineligible applicants. PPP lender DreamSpring warned Womply that it was referring PPP applications containing "obvious fraudulent information." Lendistry, a fintech also involved in PPP lending, told Womply that it "noticed a meaningful increase in the number of third-party and other inquiries related to fraud" in connection with batches of applications associated with Womply. Benworth, which issued $4.6 billion in PPP loans in 2021, warned Womply that "the services promised by Womply, have not only not been provided, but have also placed our company in a very bad predicament due to the high likelihood of fraud involved in many of the referred loans from your company."

- Womply had a windfall 2021 net revenue of over $2 billion, largely thanks to taxpayer-funded PPP processing fees, and took over $5 million in PPP loans for itself, which the SBA later determined it was ineligible to receive. In 2021, Womply secured a gross profit of $1.8 billion and gross profit margin of nearly 90 percent. Yet, Womply received over $5 million in PPP loans from its largest partner, Harvest Small Business Finance, and asked forgiveness for these loans in 2021. After reviewing Womply's application for PPP loan forgiveness, the SBA determined that Womply was ineligible for the loans that Harvest approved for them—and required the fintech to repay them in full. Both Womply's CEO and its President also received PPP loans for themselves, despite earning over $400,000 in salary in 2021 and likely taking tens of millions in taxpayer-funded PPP processing fees as personal profits.

- Womply CEO Toby Scammell—who was convicted of insider trading in 2014 and has been permanently barred from participating in the securities industry—led Womply's fraud prevention efforts and instructed his company not to cooperate with federal PPP fraud investigators. Womply not only failed to detect fraud on the front end, but also resisted helping investigators catch fraud on the back end as well. Despite telling its lending partners that Womply was working closely with the SBA and the SBA Office of Inspector General (OIG), Mr. Scammell resisted providing information to federal investigators conducting PPP fraud investigations. The SBA OIG and Fountainhead, one of Womply's lending partners, made multiple requests for information from Womply "so that the SBA can investigate potential fraudulent loan activity carried out by PPP borrowers." Womply refused. Ultimately, Fountainhead was forced to get "a temporary restraining order against [Womply], so they can't destroy these [PPP loan] documents."

- Womply may have transferred the sensitive personal and financial data of hundreds of thousands of PPP borrowers to a new business. In May 2022, Womply updated its privacy agreement to notify its customers—likely including PPP applicants—that the company claimed the right to transfer "over 2 [million] tax documents, over 1.5 [million] bank accounts from applicants" to its new company, Solo Global, Inc. Womply refused to tell the Select Subcommittee whether it has transferred sensitive PPP applicant personal and financial data to this new company, how it is using sensitive PPP applicant data, and whether it is using this data to generate profits for their new company.

### Fintechs Such as Womply and Blueacorn Were the "Paths of Least Resistance" for Criminal Gangs and Fraudsters Looking for PPP Loans

- Criminals specifically targeted Blueacorn, Womply, and other fintechs to commit PPP fraud. Fraudsters discovered that Blueacorn and Womply were among the easiest companies to apply for fraudulent PPP loans due to the ease of securing a loan through either company. Members of drug gangs in Florida that were involved in PPP fraud were recorded by police discussing Womply and Blueacorn. One gang member asked another to "show me Blueacorn" while another described Womply as "the website that['s] [] really hittin…'" and that "everybody in the hood" was using Womply. Investigators believe the PPP loans obtained by these gang members were then used to finance their criminal enterprises, including the purchase of guns and drugs.

### Capital Plus, Harvest, and Other Fintech-Partnered Lenders Conducted Little Oversight Over Womply and Blueacorn's Activities, Allowing Fraud to Infiltrate the PPP

- In the course of the Select Subcommittee's investigation, multiple PPP lenders admitted to having no formal program to monitor their fintech partners or to detect fraud in the PPP loans that they submitted. Nearly every lender investigated by the Select Subcommittee admitted to delegating their fraud prevention and eligibility verification responsibilities to their fintech partners. Yet, few lenders appear to have conducted close and proactive oversight of their fintech partners. Multiple lenders described their oversight as being limited to "spot checks" conducted at random on a small percentage of fintech-referred application files. In one case, lender Capital Plus approved dubious loans to Blueacorn's founders but claimed not to have been aware that it issued these loans until months later. Despite this lack of oversight, multiple for-profit lenders—including Capital Plus and Harvest—reported windfall profits as a result of their participation in the program.

### Kabbage's Activities in the PPP Illustrate the Lack of Sufficient Incentives in the PPP's Structure for Fintechs to Implement Strong Fraud Prevention Controls or Appropriate Borrower Servicing

- Kabbage, which facilitated over 310,000 PPP loans, implemented a system that confused and concerned employees and financial institutions. Multiple employees expressed concern about Kabbage's loan review process, with one employee informing her supervisor that she was "really uncomfortable with the review procedures" for loans and expressing her belief that "the level of fraud we're reviewing is wildly underestimated." A bank working with Kabbage expressed "concern[] about the significant increase in the fraudulent transactions confirmed by Kabbage" during the first round of the PPP.

- Kabbage approved loans with clear indicators of likely fraud, partly because the program imposed minimal risk on lenders who approved questionable applications. In one exchange, a Kabbage risk manager supervising fraud specialists told his team that "a fundamental difference" between the level of diligence applied in the PPP, as opposed to normal lending by Kabbage, was that "the risk here is not ours – it is SBA's risk."

- As fraud surged in the program, Kabbage reduced its full-time fraud prevention staff. Between May and June of 2020, during the height of the PPP, Kabbage reduced its risk and account review teams, which were primarily responsible for fraud reviews, by approximately half. After American Express acquired the majority of Kabbage's assets in October 2020, the PPP loan portfolio was transferred to a minimally-resourced spin-off entity. That company continued to fund tens of thousands of loans while retaining only one full-time anti-fraud employee.

### Bluevine Initially Faced Significant Fraud Rates, But Its Longstanding Partners Intervened to Improve Fraud Prevention Over the Course of the Program

- Federally regulated bank partners successfully pushed Bluevine to improve its controls during the PPP, likely reducing fraud. In contrast to the other fintechs and lenders examined by the Select Subcommittee, Bluevine's lending partner Celtic Bank conducted continuous oversight of Bluevine's anti-fraud controls and prompted Bluevine to introduce new software and manual review processes. These changes were followed by a steep decline in fraud incidents.

- However, overwhelmed by fraud despite improved controls, Bluevine faced difficulties in facilitating timely reporting of fraud to law enforcement. Delays at Bluevine caused Celtic Bank to submit late Suspicious Activity Reports (SARs), in violation of applicable banking regulations and to the possible detriment of law enforcement efforts to address ongoing fraud. These issues raise concerns about adequate and full reporting of PPP fraud by other third-party service providers—especially those lacking experience in filing SARs—who were facing the same fraud threats but received less rigorous oversight from lending partners.

### The Track Record of the Most Prolific Fintechs Involved in the PPP Should Prompt Caution When Allowing Lightly Regulated and Unregulated Entities to Administer Federal Lending Programs

- Fintechs—many of whom were newly-established or new to small business lending—were delegated many of the most important aspects of the PPP. These fintechs largely operated without strong oversight and many had never previously been subject to anti-money laundering (AML) and Bank Secrecy Act (BSA) requirements. This allowed actors with little experience and overstated technological capabilities, such as Blueacorn and Womply, to facilitate millions of loans and allow large-scale fraud to occur.

- Based on these findings, Congress and the SBA should consider carefully whether unregulated businesses such as fintechs, many of which are not subject to the same regulations as financial institutions, should be permitted to play a leading role in future federal lending programs. The SBA and SBA OIG should continue to investigate fraud in the PPP to establish the extent of taxpayer losses and identify misconduct by PPP participants. In addition to requiring stricter oversight during emergency programs, the experience of the PPP should inform the SBA's ongoing activities. Any expansion of SBA programs to unregulated lenders or agents must be accompanied by greater oversight by the agency.

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## II. BACKGROUND

### A. The Paycheck Protection Program Provided Support to Millions of Small Businesses Affected by the Pandemic

The Coronavirus Preparedness and Response Supplemental Appropriations Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted into law on March 27, 2020 amid severe economic dislocation caused by the coronavirus pandemic, provided more than $2 trillion in emergency funds. The CARES Act created the Paycheck Protection Program (PPP), which provided forgivable, uncollateralized, low-interest loans of up to $10 million to sole proprietors and businesses with fewer than 500 employees.

By its conclusion in May 2021, the PPP provided nearly $800 billion dollars in forgivable loans to small businesses. The PPP cost taxpayers as much as the three rounds of Economic Impact Payments and approximately the same amount as the federal pandemic unemployment benefits programs. Only slightly smaller in scale than the entire American Recovery and Reinvestment Act of 2009, the PPP was the largest small business support program in American history.

### B. The PPP Was Administered by Private Lenders as Part of the Small Business Administration's Pre-Existing 7(a) Small Business Lending Program

**1. In Addition to the Existing 7(a) Lenders, the SBA Allowed New Entities to Take Crucial Roles in Administering the PPP**

The CARES Act created the PPP under the 7(a) program, the SBA's most common loan program that provides financial help for small businesses with special requirements. All existing SBA-certified 7(a) lenders were given delegated authority to process PPP loans, and all federally insured depository institutions, federally insured credit unions, and non-bank and non-insured depository institutions lenders were eligible to make PPP loans once approved and enrolled in the program by the SBA.

Immediately following the passage of the CARES Act, Trump Administration SBA Administrator Jovita Carranza emphasized the crucial role that private lenders would have in the PPP, describing it as an "unprecedented public-private partnership." She stated that the Trump Administration's "goal [was] to position lenders as the single point-of-contact for small businesses—the application, loan processing, and disbursement of funds will all be administered at the community level." Accordingly, nearly 5,500 lenders ultimately participated in the PPP.

**2. Lenders Were Responsible for Processing and Underwriting PPP Loans**

PPP lenders were responsible for processing and underwriting PPP loans. Given the unique emergency nature of the PPP, the underwriting requirements for PPP loans differed greatly from those of traditional 7(a) loan programs. Normally, under SBA Standard Operating Procedures (SOP) and regulations, lender underwriting and lending criteria are focused on a borrower's creditworthiness and ability to repay the loan with earnings from their business.

In contrast, the PPP underwriting process did not include a check for creditworthiness, instead specifying a program-specific set of underwriting requirements. Under the rules of the PPP, lenders were required to underwrite PPP loans by (1) confirming receipt of borrower certifications; (2) confirming receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020; (3) confirming the dollar amount of average monthly payroll costs; and (4) following applicable Bank Secrecy Act (BSA) requirements.

**3. Lenders Frequently Used Third-Party Companies (Agents) to Process and Service PPP Loans**

PPP lenders turned to a variety of third parties, usually described as "agents" by the SBA, to conduct certain activities on their behalf. Two types of agents were important to the execution of the PPP: referral agents and lender service providers (LSPs). A referral agent is a person or entity that identifies and refers an applicant to a lender or a lender to an applicant. An LSP, as defined by the SBA, is an entity "who carries out lender functions in originating, disbursing, servicing, or liquidating a specific SBA business loan or loan portfolio for compensation from the lender." The SBA describes an LSP as including individuals or entities that "[p]erform any pre-qualification review based on SBA's eligibility and credit criteria or the 7(a) Lender's internal policies prior to submitting the Applicant's information to the 7(a) Lender" or "[p]rovide to the 7(a) Lender an underwritten application, whether through the use of technology or otherwise." According to the SBA OIG, LSPs are "deeply involved in all phases of the loan life cycle."

As LSPs and other agents are delegated many lender functions, under SBA regulations, a lender "must be able to demonstrate that it exercises day-to-day responsibility for evaluating, processing, closing, disbursing, servicing, liquidating and litigating its SBA portfolio." As participants in a 7(a) program, lenders, referral agents, and LSPs involved in the PPP were all subject to SBA rules governing their conduct, and the SBA could have, for good cause, suspended or revoked the privilege of any agent to participate in the PPP.

**4. Lenders and Their Agents Received Tens of Billions in Processing Fees from the SBA**

As participants in the PPP, lenders—and, by extension, LSPs and other agents who were used by the lenders—were paid a "substantial processing fee from the SBA" so that they had "ample inducement…to participate in the PPP." The structure and parameters of this compensation changed over the course of the program.

Under the PPP, agent fees could only be paid by the lender out of a lender's SBA processing fees, as agents were expressly prohibited by the SBA from collecting any fees from a PPP applicant. Under the PPP's initial rules, lenders earned a five percent fee on loans of $350,000 or less, a three percent fee on loans of more than $350,000 and less than $2 million, and a one percent fee on loans of $2 million and above. This fee structure proved extremely profitable for lenders. According to an analysis by the Miami Herald and McClatchy, PPP-participating banks received nearly $18.2 billion in fees in the 2020 rounds of the program.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act made changes to the PPP. Pursuant to these changes, the SBA issued an updated procedural notice regarding PPP processing fees. While the fees for loans of more than $50,000 remained unchanged, the fee associated with loans of $50,000 or less changed from a flat fee of five percent of the loan amount to the lesser of 50 percent of the loan amount or $2,500—a significant increase in small-loan profitability. According to one analysis, under the first PPP processing fee structure, lenders of loans of $50,000 or less received approximately $3.14 billion in fees during the first round of PPP lending. Under the revised fee structure, first round lenders would have received nearly three times as much in SBA fees for approving the same type and number of loans.

### C. Experts Warned the Trump Administration that the PPP Could Be Highly Vulnerable to Fraud

**1. The Trump Administration Did Not Heed Early SBA OIG Warnings That the PPP's Structure Would Lead to Fraudulent and Otherwise Ineligible Applications**

While the CARES Act was being debated, congressional Democrats advocated for the inclusion of strong oversight and accountability provisions. Congressional Republicans ultimately agreed to establish the Pandemic Response Accountability Committee (PRAC), comprised of Inspectors General across the federal government charged with overseeing funds disbursed by the entire bill; the Congressional Oversight Commission, four congressional leadership appointees charged with activities of the Treasury Department and Federal Reserve; and the Special Inspector General for Pandemic Recovery, a presidential appointee charged with overseeing the $500 billion fund for large businesses administered by the Treasury Department.

Given the significant discretion provided to Executive Branch officials, Democrats advocated for "multiple layers of strict oversight." However, rather than adding oversight mechanisms, President Trump, despite being warned that the PPP could lead to "the biggest fraud in the history of our country," fired the chair of the PRAC one week after his appointment while criticizing and limiting oversight of various CARES Act programs.

On the day that the SBA began issuing PPP loans, the SBA OIG warned that the program's structure—specifically, requiring limited documentation from loan applicants—had resulted in inappropriate or unsupported loan approvals in past SBA programs. OIG urged the SBA to implement proper controls before disbursing funds, such as having clear requirements and timely communications with lending partners, establishing and monitoring performance measures, developing internal controls, and establishing a plan to prevent and detect improper payments.

In June 2020, Treasury Secretary Steve Mnuchin announced that he would not allow the names of PPP recipients to become public, after claiming for months that such data would be disclosed. A week after that announcement, a letter submitted by various Inspectors General to Congress revealed that the Trump Administration had issued legal rulings curtailing independent oversight of CARES Act funding. The Inspectors General wrote that Trump Administration attorneys determined that the Administration did not have to provide the PRAC with information regarding the beneficiaries of programs created by the CARES Act's "Division A," which included the PPP and another large SBA program, Economic Injury Disaster Loans (EIDL). In response to public pressure, the Treasury Department and the SBA agreed to disclose details concerning small business loan recipients in June 2020.

Republican opposition to oversight continued throughout the program. Congressional Republicans opposed the Small Business Transparency and Reporting for the Underbanked and Taxpayers at Home (TRUTH) Act, which would have required the SBA to disclose, explain, and justify disbursements of relief funds under the PPP. A Republican Congressman serving on the Congressional Oversight Commission called the bill "redundant" and stated that "this whole PPP program is already burdened with tremendous paperwork" requirements—notwithstanding the fact that the public could not obtain basic information such as which businesses were receiving PPP loans.

That same month, Senate Republicans opposed a unanimous consent vote on a bill to require daily and weekly public reporting on SBA lending programs, broken down by geography, demographics, and types of industry. A Republican Senator—who later incorrectly claimed that the PPP fraud rate was 0.76 percent—stated that such transparency requirements were not the "right approach" and dismissed fraud concerns, stating that the PPP "by far … has been the most successful part of the CARES Act."

The SBA OIG would later determine that the SBA under the Trump Administration did not heed their early warnings. In a report issued in May 2022, the SBA OIG summarized its findings by stating:

> SBA did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and handle potentially fraudulent PPP loans across the program. In addition, the agency did not establish a centralized entity to design, lead, and manage fraud risk. This problem occurred because the agency did not establish a sufficient fraud risk framework at the start of and throughout PPP implementation.

**2. The Government Accountability Office Repeatedly Warned That the Trump Administration's Management of the PPP Left It Needlessly Vulnerable to Fraud**

In June 2020—just two months into the program—the Government Accountability Office (GAO) released a report warning of "a significant risk that some fraudulent or inflated applications were approved," in part because of the program's "limited safeguards." GAO attributed the lack of safeguards to the SBA's program management. While the CARES Act imposed good faith certification requirements on borrowers, the SBA had "streamline[d] the process" by "requir[ing] minimal loan underwriting from lenders." GAO cautioned that these Trump Administration SBA decisions made the program "more susceptible to fraudulent applications." GAO also observed that borrowers and lenders experienced ongoing "questions and confusion" about the SBA's and Treasury's various iterations of rules and frequently asked questions.

In the same report, GAO expressed concern that the Trump Administration's SBA had not developed concrete plans for "crucial" "ongoing oversight" of PPP applications to mitigate those risks. The SBA had failed to explain how it would review high value loans and provided no information on "any specific oversight plans for . . . loans of less than $2 million"—which made up the vast majority of the PPP loans issued, and would become the primary focus of fintechs. The report concluded that the SBA's "limited safeguards and lack of timely and complete guidance and oversight planning have increased the likelihood that borrowers may misuse or improperly receive loan proceeds."

Warnings regarding weaknesses in the program continued. In September 2020, after conducting its own analysis of loan-level PPP data from the first round of the program, the Select Subcommittee recommended specific controls for loan forgiveness, improvements in audit plans for loans, and increased cooperation with oversight bodies. In November 2020, GAO recommended that the SBA expeditiously review and estimate improper PPP loans and error rates, due to "concerns about the possibility that improper payments, including those resulting from fraudulent activity, could be widespread." In January 2021, GAO expressed concern that 27 of its 31 previous recommendations concerning the Trump Administration's pandemic response "remained unimplemented." GAO's report singled out the SBA, which—under the Trump Administration—had yet to implement recommendations concerning fraud controls and improper payment testing for the PPP, as "fall[ing] far short of transparency and accountability expectations" and "creat[ing] risk of considerable improper payments."

In contrast, the SBA made progress on these issues under the Biden Administration's leadership. In July 2021, GAO reviewed the SBA again and determined that the agency had implemented compliance checks for applications submitted in 2021 and had plans to conduct a fraud risk assessment. GAO noted, however, that the SBA needed to provide further guidance on loan forgiveness processes.

### D. Multiple Indicators Pointed to Massive PPP Fraud

**1. The SBA OIG Reported an Unprecedented Increase in Hotline Complaints, and Banks Filed a Record Number of Suspicious Activity Reports**

SBA Inspector General Hannibal Ware reported a 10,000 percent increase in hotline complaints after the passage of the CARES Act—an indicator that the PPP had triggered a potentially large volume of fraud. He further described the SBA OIG as being "inundated with contacts to our investigative field offices across the nation from financial institutions across the nation."

According to a Bloomberg report, banks filed an abnormally high number of reports of suspected business loan fraud in July 2020, shortly after the start of the PPP and other pandemic relief programs. According to their analysis, the number of SARs in June 2020 was more than triple the average monthly number and was the second-highest monthly number of SARs for suspected business loan fraud in history. There were 1,044 SARs filed in July 2020, nearly seven times the average number of monthly reports of suspected business loan fraud and the highest monthly number of SARs for suspected business loan fraud since reporting requirements began.

**2. The SBA Flagged Millions of PPP Loans for Further Review**

According to information obtained by the Project on Government Oversight (POGO), the SBA also determined that a large number of PPP loans had indicators of suspicious activity or potential fraud. POGO's reporting found that internal SBA data showed that the agency flagged nearly 2.3 million PPP loans worth at least $189 billion—about a quarter of all PPP dollars disbursed—for further review between August 2020 and September 2021.

POGO's analysis of SBA data also revealed that the agency issued 4.3 million flags—each signifying concerns that a loan was potentially fraudulent, the recipient was possibly ineligible, or the loans in question merited closer examination for some other reason. The SBA issued a flag on nearly 800,000 loans indicating that the recipient businesses did not exist prior to February 15, 2020, and therefore were not eligible to receive loans. SBA also noted that nearly 240,000 loan recipients had an "inactive business."

Although a flagged PPP loan does not necessarily mean that the loan was fraudulent or the recipient ineligible, a large number of flags could be indicative of a large number of improper payments in the program.

**3. Researchers Estimated That 1.4 Million PPP Loans—Totaling Over $64 Billion—Had at Least One Indicator of Potential Fraud**

In August 2021, after the conclusion of the program, researchers at the McCombs School of Business at the University of Texas analyzed PPP loans for indicators of potential fraud by borrowers. Using these indicators, the researchers estimated that more than 11 percent of PPP loans, totaling $64.2 billion—at least 1.41 million of the 11.5 million total loans analyzed—had at least one indicator of potential fraud. The researchers also found that fintech-facilitated or issued loans were over three times as likely to have at least one primary indicator of misreporting compared to traditional loans. Of loans with a primary indicator of fraud, those that were fintech-facilitated were 6.5 times as likely to also have a secondary fraud indicator.

**4. U.S. Attorneys' Offices Have Brought Over 1,000 Cases of PPP Fraud—Totaling Over $1.5 Billion in Alleged Actual Loss to Taxpayers**

The first federal fraud charges related to the PPP came just a month after the program began. Since then, law enforcement has used tips from the public, SARs, and other information to prosecute those who defrauded the PPP. As of October 2022, the Fraud Section of the Criminal Division of the Department of Justice (DOJ) has charged approximately 235 defendants in pandemic fraud related matters in 162 cases, with actual loss totals of approximately $336 million. U.S. Attorneys' Offices have charged an additional 1,616 defendants in 1,050 cases with a total of over $1.284 billion in alleged actual loss.

### E. Fintechs Eagerly Stepped Forward to Participate in the PPP, Claiming That They Were More Capable of Quickly Issuing PPP Loans Than Government Agencies and Traditional Banks

**1. Unregulated or Lightly-Regulated Fintechs Increased Their Reach in the Years Before the Pandemic, and Expanded Further During the Crisis**

Fintechs are involved in a wide range of financial services, ranging from online or mobile checking accounts to mortgages, insurance, investing, payment processing, and cryptocurrencies. Due to the broad range of services that fintechs offer, there is no single licensing or regulatory agency that oversees all of these companies. Those fintechs that are licensed or supervised often interact with local, state, or federal regulators on a functional, or activity-based, basis. However, some fintechs, based on their activities, may face little or no regulatory oversight.

The fintech industry was growing steadily prior to the pandemic. In addition to the inherent convenience of online and mobile financial services, fintechs have held out the promise of technology-driven operational efficiencies that would decrease costs and facilitate the inclusion of underserved customers traditionally left out of the banking sector. In addition to attracting consumers, fintechs also partner with financial institutions as they increasingly delegate many of their functions to fintechs through complex partnerships. The demand for fintech services increased at an even higher rate during the coronavirus crisis.

**2. Fintech Industry Groups Sought to Be Included in the Administration of Pandemic Relief Programs, Claiming to Be Better Positioned Than Traditional Financial Institutions**

Multiple fintech industry groups advocated for the inclusion of fintechs in the administration of pandemic relief programs. Before the passage of the CARES Act, a fintech industry group submitted a letter to Congress asking that Treasury be directed to permit online non-bank lenders to disburse pandemic relief funds, alone and through partnerships with non-fintech financial institutions. The industry group claimed that fintechs had the "payment processing data and other technologies" and "digital infrastructure to move money rapidly" to small businesses in need of relief.

Another fintech industry group specifically advocated for the inclusion of fintechs in pandemic relief targeting small businesses, claiming that "government agencies are ill-equipped to handle the volume of small businesses that are going to need emergency financing and, even in the best of times, could not supply businesses with the funding they will need quickly enough." Fintech industry groups promoted fintechs as a solution to these limitations, promising that "innovative financial technology companies [could] handle that [large] amount of data and underwriting quickly" as "both service providers that work on behalf of banks that already partner with SBA as well as non-bank lenders providing emergency credit with an SBA guarantee or as an emergency conduit for SBA originated credit." The head of the fintech industry group claimed that, if allowed to help facilitate small business lending, they would "[underwrite] loans using algorithms at speed and scale."

Lawmakers and regulators ultimately allowed fintechs to participate in the PPP as lenders and agents. The first fintechs were approved to participate in the PPP in mid-April 2020, and soon others—including PayPal, Square, Intuit, Lendistry, MBE Capital Partners, LLC (MBE Capital), Bluevine, and Kabbage (along with Kabbage and Bluevine's partners, Celtic Bank and Cross River Bank)—also became participants. In early 2021, following the change in the PPP fee structure, newer and less experienced fintechs, including Womply and Blueacorn, entered the program and took leading roles.

**3. Once Included in the PPP, Fintechs Took a Leading Role in the Program**

Fintechs, acting as both lenders and LSPs, became prominent in the PPP. By the end of 2021, the vast majority of the largest PPP lenders, by both value and volume (nine out of ten), were fintechs or fintech-partnered lenders. Although the SBA states that fintechs (and other state regulated lenders) approved over 1.2 million PPP loans, totaling nearly $22 billion, in just 12 months, this figure is likely a significant undercount, as it does not include the billions of dollars in PPP loans that were issued by lenders that partnered with fintechs to issue loans.

According to a fintech industry group, fintechs "served more than double the small businesses" as Community Development Financial Institutions (CDFIs). In a June 24, 2021, opinion article, the CEO of a fintech industry group claimed that 41 fintechs were "collectively the third largest facilitators of PPP based on the number of loans (18 percent) and loan dollars (eight percent) distributed by lender type." He wrote: "policymakers and the media have been disproportionately focused on a very small percentage of fraud that took place in the program."

### F. Analysis Indicated that Fintechs Likely Facilitated a Disproportionately High Number of Fraudulent and Otherwise Ineligible PPP Loans

**1. Early DOJ Prosecutions of PPP Fraud Cases Disproportionately Involved Fintechs**

An SBA OIG official tasked with investigating PPP fraud described fintechs as "the paths of least resistance" for bad actors seeking a PPP loan. Multiple analytical projects based on PPP fraud prosecutions lend credence to this opinion and indicate that fintechs were disproportionately linked to PPP fraud. In October 2020, a Bloomberg analysis found that fintechs handled 75 percent of the approved PPP loans that had been connected to fraud by DOJ, despite arranging just 15 percent of PPP loans overall at that point. An October 2020 analysis conducted by POGO found that nearly half of the approved PPP loans in the first 56 PPP fraud cases involved just seven fintechs and fintech-partnered banks.

**2. Experts Found That Fintechs and Fintech-Partnered Lenders "Specialized in Dubious Loans"**

Researchers at the McCombs School of Business at the University of Texas found that fintechs and fintech-partnered financial institutions were the PPP lenders most closely associated with potentially fraudulent loans. According to media reports, the researchers found that certain fintech-partnered lenders appeared to "specialize in dubious loans," with the analysts concluding that fintechs made around 32 percent of PPP loans but accounted for more than 60 percent of all suspicious PPP loans originated. Their findings indicated that "replacing traditional lending with FinTech lending amplified misreporting problems."

The study also found that "the four largest FinTech lenders, Cross River [Bank], Prestamos [affiliated with Blueacorn], Harvest [affiliated with Womply], and Capital Plus [affiliated with Blueacorn] exhibited high rates of misreporting and large lending volume growth" and that they did not get better over time, as "[fintech] lenders often doubled or tripled their potential misreporting rates in round 3 compared to rounds 1 and 2." The researchers asserted that "not all [fintech] lenders have high misreporting rates," citing low rates at fintechs Square and Intuit and concluding that "online lending in and of itself does not appear to be the problem." However, the study's authors concluded that:

> [T]he increasing scale of [fintech] misreporting through time indicates that current penalty and enforcement systems are not effective. If the system is not changed for future programs, the most likely outcome is even more of the same.

Ultimately, the study concluded that some "established FinTech lenders persistently have low rates of misreporting, indicating that [fintech] lending need not be substandard" and that "incentives in the PPP appear misaligned in that [fintech] lenders with widespread indicators of misreporting made billions of dollars dispersing loans with apparently lax oversight procedures."

### G. The Select Subcommittee's Investigation into Fintechs' Handling of Fraudulent and Otherwise Ineligible PPP Loans

On May 27, 2021, the Select Subcommittee requested documents and information from four companies—Kabbage, Bluevine, Cross River Bank (Cross River), and Celtic Bank (Celtic)—after public reports alleged that these fintechs and bank partners failed to adequately screen PPP loan applications for fraud. On November 23, 2021, the Select Subcommittee expanded its investigation to include Blueacorn and Womply after researchers at McCombs School of Business at the University of Texas issued a study indicating that these highly prolific fintechs may have also been disproportionally linked to financial crime in the PPP.

The Select Subcommittee also obtained information from Harvest, Capital Plus, Prestamos, American Express, Fountainhead, Benworth, Wells Fargo, Bank of America, and CDC Small Business Finance. In the course of the investigation, Select Subcommittee staff reviewed more than 83,000 pages of internal documents and had multiple briefings and conversations with former fintech employees and others with knowledge of fintech activities. The Select Subcommittee also was briefed by staff of the SBA and the SBA OIG.

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## III. INVESTIGATIVE FINDINGS

### A. Fintechs and Lenders Observed Significant Fraud in the PPP, Which They Attributed to Program Mismanagement as They Sought to Evade Responsibility

**1. Fintechs and Lenders Observed Large-Scale PPP Fraud**

Internal communications obtained by the Select Subcommittee show that fintechs and their lending partners both anticipated and observed high levels of fraud in the PPP. As early as April 2020, Cross River's Chief Risk Officer warned in an internal email that "there will be fraud rings going after these [PPP] funds." Months later, in an October 2020 email, the CEO of Celtic Bank wrote that "[t]he [PPP] fraud is definitely getting up there," noting that the level of fraud was "not surprising given the program guidelines."

Eight months after the start of the PPP, it was clear to some lenders that the fraud they had predicted was occurring and was not well controlled. In an internal November 2020 email, a Celtic Bank compliance manager noted that the company's involvement in the PPP had led to increased fraud:

> While Celtic's Bank's participation in the Paycheck Protection Program provided emergency funding to small businesses throughout the Country [sic], we have also seen an uptick in fraudulent and money laundering activities identified across the Bank and our Strategic Lending Partnerships.

This high level of fraud taxed the financial crime compliance capabilities of PPP lenders. In March 2021, a full year into the PPP program, a Celtic Bank financial crime manager again observed that the high levels of fraud related to the PPP continued, telling a Bluevine financial crime manager that "the surge in fraud associated with [the] PPP has strained all of our resources."

While observing that the rate of fraud was high and noting that their capabilities to detect and respond to this fraud were under strain, lenders struggled to determine exactly how much taxpayer money was being lost to PPP fraud. In an August 12, 2020, email obtained by the Select Subcommittee, Celtic Bank's President and Chief Operating Officer estimated that potential fraud losses in the PPP could have already reached "over $10 billion" and described potential overall taxpayer losses to PPP fraud as a "helluva lot of money." On July 18, 2020, a senior Kabbage official wrote that "Experian data services reports 4.5 [percent] [PPP fraud rate] in their network." In a September 8, 2020 email, a Kabbage executive claimed that consumer credit reporting agency Equifax was "seeing confirmed [PPP] fraud between 4 and 10 [percent]," which would amount to as much as $80 billion in fraudulent loans across the entire life of the program, if the rate was consistent.

**2. Fintechs and Lenders Sought to Shift Risks of Fraud Losses to the Taxpayer and Criticized Trump Administration Mismanagement**

Internal emails obtained by the Select Subcommittee show that PPP lenders expressed concern that they would be held accountable for taxpayer losses if and when the extent of PPP fraud became publicly known. At the working level, in response to an analyst's question about flagging potentially fraudulent applications, a Kabbage risk manager told his team:

> I do think we should not look at fraud here from a kabbage [sic] lending perspective. … a fundamental difference is the risk here is not ours - it is SBAs [sic] risk.

In response, a Kabbage risk management employee wrote:

> I understand that[.] I think I personally am just concerned something will come back at us. Can we be included in any discussions regarding the SBAs [sic] feelings about our reviews? I personally would like to know if we're under heat from the gov [sic] for fraudsters robbing the gov [sic].

At the executive level, lending executives involved in the PPP who witnessed fraud rates increase at their institutions expressed trepidation not only about potential reputational harm, but also that their institutions would be held financially liable for the taxpayer losses. In an internal email obtained by the Select Subcommittee, the CEO of Celtic Bank wrote that "the industry should push hard to make sure the SBA accepts the fraud risk"—presumably so that the consequences of the fraud would fall upon taxpayers, not the lenders. The CEO of Benworth—a top PPP lender—suggested that he was concerned about the amount of PPP fraud that their fintech partner failed to detect, writing in an internal email: "When the party is over and the lights turn on, we will be the only ones at the party (and it seems standing naked)."

Fintechs and their lending partners recognized that high fraud rates resulted from the Trump Administration's mismanagement of the PPP. In a September 30, 2020 email, Kabbage's head of policy wrote: "At the end of the day[,] it's the SBA's shitty rules that created fraud, not [Kabbage]." Another bank executive pointed out that the Trump Administration was too slow to provide guidance on how to identify and prevent PPP fraud. In response to an August 2020 SBA email announcing a webinar on preventing PPP fraud, Celtic Bank's President called the Trump Administration's action "a bit late," remarking that the "horse has been out of the barn for a while now" with respect to PPP fraud.

### B. Blueacorn Took Only Minimal Steps to Prevent Fraud in Its Facilitation of Billions of Dollars in PPP Loans, While Abusing the Program to Enrich Its Owners

Blueacorn, a fintech startup, was founded by a group of Arizona entrepreneurs in April 2020 specifically to facilitate PPP loans. To support the company in facilitating PPP loans, Blueacorn hired Arizona-based consultancy Elev8 Advisors to advise it on compliance with relevant laws and regulations related to the PPP and to assist with responding to subpoenas and other requests for records. Elev8 Advisors also provided applicant "verification services" to Blueacorn and hired contractors to review PPP applications on the fintech's behalf for eligibility and to flag potentially fraudulent applications. In presentations to lending partners, Blueacorn included one of the owners of Elev8 Advisors as part of their leadership team.

In 2021, Blueacorn was involved in the processing of nearly all of the loans facilitated by the top two PPP lenders that year by loan volume—Capital Plus and Prestamos. Blueacorn's partner lenders together facilitated almost three times as many PPP loans in 2021 than JPMorgan Chase and Bank of America combined.

*[Figure 1: Chart showing the top PPP lenders by number of loans approved in 2021, indicating that entities partnering with Blueacorn (Prestamos and Capital Plus) and with Womply (Harvest and Benworth) approved the highest number of PPP loans.]*

Blueacorn provided fraud prevention, eligibility verification, customer support, and other services for Capital Plus and Prestamos. Both lenders told the Select Subcommittee that they largely delegated their fraud prevention and eligibility verification functions to Blueacorn and relied on the fintech to screen applications. For its work, Blueacorn received over $1 billion in taxpayer dollars from Prestamos and Capital Plus.

The scale of Blueacorn's involvement in the PPP amplifies concerns about their failures and potential misconduct. In a conversation with Select Subcommittee staff, an SBA OIG employee involved in PPP fraud described fintechs, including Blueacorn specifically, as "paths of least resistance" for those looking to commit PPP fraud, as discussed in Section D below. DOJ prosecutions of multiple borrowers that received PPP loans from Blueacorn's lending partners appear to support this assessment. In addition to concerns over Blueacorn's handling of financial crime prevention, public allegations of poor borrower support have also plagued the fintech. A ProPublica article described the dissatisfaction that multiple PPP applicants felt towards Blueacorn. A review of Blueacorn's social media accounts show that the company received thousands of customer complaints, more than they were able to respond to at the time. Despite these failings, by the beginning of 2022, Blueacorn had disbursed to its ownership as profits over $250 million of the funds that they were given in 2021 to facilitate the PPP.

As detailed below, the Select Subcommittee's investigation found that Blueacorn spent less than one percent of its budget on fraud prevention efforts. In addition to spending little on this function, multiple former Blueacorn employees told the Select Subcommittee that they were both poorly trained and pressured by Blueacorn leadership to approve potentially fraudulent loans. The Select Subcommittee's investigation also found examples of potential misconduct by Blueacorn and its leadership. Internal communications and statements made by Blueacorn insiders indicate that Blueacorn—which claimed to be focused on the underserved—both prioritized and gave less scrutiny to high dollar loans. Most troublingly, the Select Subcommittee's investigation found that Blueacorn's leadership—including those tasked with preventing fraud in the PPP—may have themselves committed PPP fraud or used their company to improperly obtain PPP loans.

**1. Blueacorn Processed a High Volume of PPP Loans, Despite Lacking Adequate Preparation or Expertise**

*a. Blueacorn Processed $12.5 Billion in PPP Loans in 2021, Becoming One of the PPP's Most Significant Participants*

Blueacorn was founded in April 2020 with "the singular purpose" of facilitating PPP loans for small businesses. The initial Blueacorn leadership team consisted of cell phone accessory merchant and former Lehman Brothers subprime derivative salesman Nathan "Nate" Reis (Co-Founder and former Chief Executive Officer), his wife and former television newscaster Stephanie Hockridge (Co-Founder and former Customer Service Lead), technology entrepreneur Noah Spirakus (Co-Founder and Chief Technology Officer), and other Arizona-based entrepreneurs. In January 2021, Blueacorn turned to Elev8 Advisors, an Arizona-based consultancy, as a compliance consultant and marketing partner. Elev8 Advisors was founded in March 2018 by Adam Spencer, a former payments processing executive, and his wife, Kristen Spencer, who previously worked at a retail branch of a bank and sold insurance.

Blueacorn, a self-described "fintech lender service provider," stated that it "facilitate[d] the application for and fulfillment of PPP loans predominantly for businesses and workers who qualified as independent contractors, self-employed individuals, freelancers, and gig workers." Blueacorn claimed that it "ultimately support[ed] 808,000 small business owners / sole proprietors via disbursement of $12.5 billion in SBA PPP funds." As such, Blueacorn was involved in the disbursement of more PPP funds in 2021 than America's largest bank, JP Morgan Chase. Blueacorn's participation in the PPP was also significant in terms of number of loans approved. According to Blueacorn, out of the over 1.7 million loan applications that were formally submitted by potential borrowers (after completing initial screening), the fintech approved and sent to lenders 739,282 PPP loan applications for funding in 2021.

Blueacorn, with the assistance of Elev8 Advisors, facilitated PPP loans through lenders Capital Plus and Prestamos. In January 2021, Blueacorn entered into an LSP agreement with Capital Plus, under which Blueacorn was to provide "staff services" to Capital Plus "to carry out certain functions related to the PPP Loan Portfolio rather than hiring employees directly for those same staff functions." According to that agreement, this arrangement was meant to "be more economical and [] result in a higher level of service and expertise to provide better delivery to the small business concerns." On April 14, 2021, Prestamos and Blueacorn signed a similar LSP agreement under which Blueacorn would engage "in the origination, marketing, underwriting, and funding of loans" for Prestamos.

In its partnerships, Blueacorn promised to provide crucial underwriting activities that were required as part of the PPP, including gathering and verifying business information, loan eligibility information, and applicant-supplied tax documents. In a presentation obtained by the Select Subcommittee, Blueacorn promised Capital Plus that it would "process[], underwrite[], approve[] & fund[] loans that qualify for the PPP." Blueacorn claimed to have a "proprietary document intake engine [that] allows our team to process certain types of [PPP] applications in 5 minutes."

Blueacorn also touted its underwriting expertise and claimed to "have contracted a trusted partner to provide highly trained, skilled, and vertically focused underwriters who have come from various walks of the Financial Services industry including small business services, lending, and payments." In a marketing presentation given to Prestamos, Blueacorn promised to provide "technology and financial expertise to streamline the [PPP] application process," and stated that the fintech had an "extensive vetting and approval process." Prestamos told Select Subcommittee staff that, under their arrangement with the fintech, "the majority of the [PPP processing] workflow was going to go through [Blueacorn]."

*b. Blueacorn Advertised "Free Money" and Loan Qualification in "Less Than 30 Seconds," Attracting Millions of PPP Applicants*

According to company data, over 4.1 million applicants completed Blueacorn's online eligibility questionnaire and started a PPP application. Blueacorn used targeted internet advertisements, referral agreements, billboards, radio commercials, and other traditional marketing mediums to attract prospective applicants to its website with promises of easy loan qualification.

In one promotional appearance, Ms. Hockridge described the PPP as "$100 billion dollars of free money," directing applicants to Blueacorn's website to "find out in less than 30 seconds" whether they qualified for a PPP loan. Ms. Hockridge promised potential applicants that, "if you end up making it to the [Blueacorn] log-in page, you qualify" for a PPP loan. In Facebook advertisements, Blueacorn reportedly told prospective borrowers that the loans were "100% forgivable, meaning you don't need to pay anything back" and offered approval in one to two days.

*c. Blueacorn Received Over $1 Billion in Taxpayer-Funded Fees for Its PPP Services*

Blueacorn received over $1.08 billion from its lending partners as fees for its PPP services in 2021. According to internal financial information obtained by the Select Subcommittee, Prestamos paid Blueacorn $700 million and Capital Plus paid Blueacorn $386 million in PPP processing fees. Under their LSP agreements, Capital Plus and Prestamos gave Blueacorn the majority—up to 70 percent—of the processing fees that they received from the SBA. In communications obtained by Select Subcommittee staff, Mr. Reis remarked on Blueacorn's success, bragging that his company had made nearly $1.5 billion dollars in less than half a year and that the company's accounts held $750 million in cash.

*d. Despite Becoming an LSP a Year into the PPP, Blueacorn Admitted to Being Unprepared for the Role It Took in the Program*

Unlike the fintechs and lenders that were faced with the challenge of reviewing PPP loans in the uncertain environment at the start of the program in April 2020, by 2021, Blueacorn's operators had a year to observe the program and to formulate strong systems before entering the LSP market. Despite this, Blueacorn executives admitted that the fintech's services were hastily assembled.

Ms. Hockridge described Blueacorn's operation as "building the parachute after we jumped out of the plane." In an interview posted to Medium, CEO Barry Calhoun described Blueacorn as "a fly-by-seat-of-the-pants sort of environment." In an April 2020 Twitter message, another Blueacorn co-founder wrote that Blueacorn's founders "built a Fintech airplane while falling from the sky, in three minutes (weeks, but who's counting)."

*e. Blueacorn's Eligibility Verification and Fraud Investigations Leadership Lacked Significant High-Level Experience in Financial Crime Prevention and Fraud Investigations*

Blueacorn Chief Operating Officer Matt Yahes and another Blueacorn employee who served as underwriting manager were identified by Ms. Spencer as being the Blueacorn leadership members who supervised the fintech's eligibility verification processes. According to conversations with former Blueacorn employees and discussions with Blueacorn, the fintech primarily relied on three senior staffers—an operations manager, the aforementioned underwriting manager, and an investigations manager—to develop Blueacorn's fraud detection process, produce PPP loan review guidance documents, supervise fraud investigations, and answer questions related to fraud and eligibility by loan reviewers.

Despite drafting Blueacorn's primary guidance document for verifying eligibility and identifying fraud, neither Blueacorn's underwriting manager nor its operations manager appear to have had any prior training or experience in developing institution-wide policies for identifying or preventing fraud in large volume lending programs. Yet, in its promotional material, Blueacorn prominently mentioned that its underwriting manager "came from Silicon Valley Bank and underwrote loans in PPP Round 1." This is an apparent reference to an individual who appears to have spent just 17 months at Silicon Valley Bank in a relatively junior underwriting position and had less than three years total of banking experience when he joined Blueacorn. According to multiple Blueacorn reviewers who spoke to Select Subcommittee staff on condition of anonymity, this underwriting manager was relied on to train reviewers and to answer their questions regarding fraud and eligibility.

Blueacorn's operations manager also appears to have had little experience in banking and virtually no experience in fraud detection or financial crime compliance before managing the review of hundreds of thousands of taxpayer-backed PPP loans. Describing his role in the fintech, the operations manager claimed to have "built a [Blueacorn] department from the ground up" that "managed a team of 200+ and processed over 1 million PPP applications for borrowers." Blueacorn's operations manager, who was 25 years old and appears to have had four years of experience with financial entities, authored the primary eligibility review and fraud detection documents used by Blueacorn application reviewers as their primary resource guide.

Similarly, Blueacorn's investigations manager supervised the company's dedicated fraud investigations team for the duration of the fintech's involvement in the PPP. Despite supervising Blueacorn's crucial fraud investigation function, this manager appears to have had no prior professional experience in investigations, financial crime compliance, banking, or fraud prevention, having previously worked in the areas of health care analysis and marketing.

*f. Elev8 Advisors' Co-Owners, Unqualified to Review PPP Loan Applications for Fraud and Eligibility, Hired Similarly Unqualified Friends and Family to Perform These Tasks*

Blueacorn told the Select Subcommittee that it had only "one direct employee who assisted with processing PPP loan applications." The company explained that it "almost exclusively relied on third-party companies and contractors" to process PPP loan applications. As noted above, Blueacorn relied heavily upon Elev8 Advisors—a small Arizona-based payment consultancy owned by husband and wife entrepreneurs Adam and Kristen Spencer—to review Blueacorn's hundreds of thousands of PPP loans. Despite being involved in the review of hundreds of thousands of PPP applications, Elev8 Advisors had just a single employee, according to an August 2021 PPP loan forgiveness application.

Elev8 Advisors informed the Select Subcommittee that it "performed significant advisory services, including those relating to banking as a service, . . . for very sophisticated financial service clients that we can't reveal because of confidentiality." In response to requests from the Select Subcommittee, Elev8 Advisors declined to furnish specific examples of prior experience that was similar to or would otherwise have prepared the consultancy for the role that it played with respect to Blueacorn and the PPP. Citing confidentiality obligations, the company declined to identify a single company for which it had provided loan underwriting consultancy or Know Your Customer (KYC), Anti-Money Laundering (AML), Bank Secrecy Act (BSA) compliance, fraud prevention, and compliance auditing consulting services prior to the PPP.

Ms. Spencer was herself a key supervisor in Blueacorn's eligibility verification and fraud prevention program, managing a group of contractors who worked as eligibility verifiers and document processors for Blueacorn. Ms. Spencer, who personally reviewed PPP application for signs of fraud, also received escalation of potential fraud from the reviewers under her company's supervision, and was responsible for directing these escalations to Blueacorn senior staff. One Blueacorn PPP application reviewer told Select Subcommittee staff that Ms. Spencer played a central role in the fintech's fraud prevention processes: "At one point I contacted Kristen Spencer to ask what the fraud department was and she said that she was the fraud department."

Ms. Spencer had no prior experience leading or performing fraud prevention or underwriting services for multibillion-dollar federal programs. Her most recent experience prior to her work with Elev8 Advisors was as the owner of an online clothing shop. Prior to that, Ms. Spencer worked in retail banking and insurance sales until 2006. According to a former Elev8 Advisors contractor who spoke to Select Subcommittee staff on condition of anonymity, Ms. Spencer quickly became overwhelmed by her role as the recipient of applications potentially flagged for fraud and sought to minimize the number of applications that were being flagged for fraud by those under her supervision. The contractor told Select Subcommittee staff that Ms. Spencer admonished PPP loan application reviewers for sending "too many loan applications to her for fraud review" and stated that "she could not process this amount." Slack messages obtained by the Select Subcommittee appear to confirm this account. In one message to a Blueacorn information technology consultant, Ms. Spencer wrote, "I was doing a million jobs…I was…the fraud team, plus in charge of [the] processing / underwriting team."

Elev8 Advisors hired its co-owners' inexperienced friends and relatives, including the couple's parents, siblings, and children, to review and underwrite PPP applications in connection with its fraud-prevention contract with Blueacorn. According to a former Blueacorn contractor:

> [Mr. Spencer] hired at least 30 of his closest friends and family to work as underwriters submitting PPP loans to the SBA through Blueacorn[]. These employees include but are not limited to his wife, sons, brother and sisters in law, father in law [sic] and mother in law [sic], and friends of himself and his sons.

Documents obtained by the Select Subcommittee confirm that Mr. Spencer's children (one of whom had just recently graduated from high school) and other close relatives worked as PPP application reviewers and loan underwriters. These individuals included multiple professionals from industries with no connection to the financial sector, and with no apparent experience in financial crime compliance, fraud prevention, or underwriting. In a Slack message sent from Ms. Spencer to Ms. Hockridge, Ms. Spencer called her teenaged son a "really strong underwriter" and later shared with Ms. Hockridge a picture of him "looking up bank accounts" as part of reviewing PPP loans.

**2. Blueacorn Spent Little on Fraud Prevention and Eligibility Verification, While Directing Hundreds of Millions of Dollars to Its Owners and Executives**

Internal Blueacorn financial documents obtained by the Select Subcommittee indicate that Blueacorn allocated few of its financial resources to fraud prevention, eligibility verification, or customer support functions—directing a significant majority of the SBA processing fees that it received to its owners as profit and to a marketing firm owned by Blueacorn's own strategic advisors. According to these documents, $666 million of the $1.08 billion in taxpayer funded SBA processing fees that Blueacorn received—well over half of the total—went to Paynerd (also known as Paynerdier), a marketing company founded and operated by Blueacorn Strategic Advisor Matt Mandell and Blueacorn Chief Marketing Officer Taylor Hendricksen. Nearly two-thirds of the remaining funds—$258 million—were disbursed to Blueacorn's owners as profits.

*[Figure 2: Selected expenditures of Blueacorn related to the PPP. The largest expense, and the bulk of Blueacorn's PPP proceeds, $666 million, went to Paynerd for marketing. The second largest expenditure was owner and company profits.]*

Blueacorn spent little on eligibility verification, fraud prevention, or technology compared to the large amount of taxpayer money that went to its owners and a marketing firm whose principals were part of Blueacorn's senior leadership. According to internal financial documents, Blueacorn spent 0.79 percent ($8,682,207) of its total income on fraud prevention, 1.26 percent ($13,713,563) on eligibility verification, and 4.75 percent ($51,597,240) on technology. Similarly, just 0.75 percent of Blueacorn's total income was spent on customer service and support, despite the fintech being inundated with complaints from borrowers about the quality of their customer support. By contrast, Blueacorn gave its owners approximately 24 percent of its total income in 2021 as profits and gave a marketing firm controlled by the fintechs' senior leadership over 60 percent of its total income in 2021.

In an email obtained by the Select Subcommittee, Mr. Spencer pitched potential PPP partnerships to banks as a "new profit center" and "low to no risk fee generator." He also wrote that the PPP provided an "immediate influx of potential customer growth to cross-sell other bank products with no Cost of Acquisition." Although the company disclosed its profits and disbursements, Blueacorn declined to provide the Select Subcommittee with profit information related to individual owners. However, according to a Blueacorn operating agreement obtained by the Select Subcommittee, Mr. Spirakus owned a 50 percent interest in Blueacorn while Mr. Reis and Ms. Hockridge jointly owned the other 50 percent. This ownership stake could have entitled Mr. Spirakus to $129 million, while Mr. Reis and Ms. Hockridge would have shared the other half. A video created by Mr. Reis and Ms. Hockridge and obtained by Select Subcommittee staff show Mr. Reis showing off large amounts of cash in a bar on December 21, 2021. According to public records, Mr. Reis relocated to San Juan, Puerto Rico, which has no capital gains tax, following his work at Blueacorn and has registered another company, Lender Service Consultants LLC. In an October 8, 2021, video obtained by Select Subcommittee staff—geolocated to San Juan, Puerto Rico—Ms. Hockridge recorded Mr. Reis on the balcony of a luxury beachfront apartment.

Messages obtained by the Select Subcommittee made clear that the Spencers saw Elev8 Advisors' involvement in the PPP as a significant opportunity to enrich themselves and their family members. In a text message obtained by the Select Subcommittee, Ms. Spencer told family members, some of whom worked as PPP loan reviewers, that the PPP was a "once in a lifetime opportunity." Ms. Spencer told family members whom the Spencers had hired to conduct the PPP review process: "We are doing this for the people we hired to make money. Our friends and family. That is where the money is going. And it will be life changing money for anyone who does it." Referring to the money that she and her family would make from the PPP, she continued, "[a]nd while [money is] not everything--it's a fucking lot."

**3. Blueacorn Application Reviewers Alleged Poor Training and Reported Being Pressured to "Push Through" Potentially Fraudulent Applications**

Multiple staff working for Blueacorn to review PPP applications reported serious concerns about the company's processing of PPP loan applications. An SBA OIG complaint obtained by the Select Subcommittee submitted by a former Blueacorn PPP application reviewer alleged multiple control weaknesses and poor processes in the fintech's PPP review program. In the complaint, the former Blueacorn PPP application reviewer described their lack of training:

> I was submitting PPP loans to the SBA the first minute of the first day I started working….and I was given no formal or informal training on loan underwriting, as well as no training on how to properly identify and report fake government identification such as a driver's license. I was given no training on how to identify fraudulent tax and bank documents such as Schedule C and bank transaction history.

The reviewer noted that the lack of training did not slow down Blueacorn's review process, writing: "On my first day, without knowing what I was doing, but following instruction from my superiors, I submitted at least 300 PPP loans to SBA without any training or any understanding of loan underwriting."

The reviewer also alleged that Blueacorn's application review process "incentivized the fast and inaccurate submission of PPP loans to the SBA by offering cash bonuses…for submitting as many PPP loans to the SBA as quickly as possible." The reviewer also reported that they felt pressure from Blueacorn's leadership to reduce the number of applications flagged for fraud, writing:

> After several days of trying to accurately perform my job duties and flag potentially fraudulent applications for further scrutiny, I was contacted by my superiors about what they considered to be an excessive number of flagged loans. I was subsequently pressured to submit a higher number of loans to the SBA despite my concerns of the applications potentially containing fraudulent documents. I was told we were expected to process at least 30 to 40 application[s] per hour.

The reviewer also reported that Blueacorn's leadership disregarded and downplayed the risk of fraud in the PPP:

> When I complained to my superiors that I was uncomfortable identifying potential fraud and submitting PPP loans to the SBA at this rate, without proper training, I was told on multiple occasions by [Blueacorn leadership] that "We are not the fraud police. Even if the applicants are submitting fraudulent documents, we are covered by the applicants['] attestation that what they are submitting is truthful, and even fraud will help stimulate the economy."

According to the reviewer, Blueacorn management told them: "We want you to submit. The more you submit, the more we get paid."

Select Subcommittee staff spoke with a former Blueacorn eligibility verification supervisor, on condition of anonymity, who expressed similar concerns. The supervisor, who managed 15 reviewers that were responsible for reviewing the applications and supporting documents submitted by PPP applicants as part of their loan applications, told Select Subcommittee staff that Blueacorn reviewers were originally told to screen applications for fraud. However, according to the supervisor, Blueacorn later de-emphasized fraud screening in favor of approving more applications. The supervisor stated: "Towards the beginning, they wanted us to check for fraud and send it to a fraud department if we noticed anything."

However, according to the supervisor, Blueacorn leadership gave new instructions as the program progressed. The supervisor told Select Subcommittee staff that "anything we thought was fraud they still wanted us to push it through, and they informed us the SBA would handle any fraud we didn't stop."

The Blueacorn supervisor also told Select Subcommittee staff that reviewers frequently saw applications with signs of fraud, despite those applications having already cleared Blueacorn's automated systems. The supervisor informed Select Subcommittee staff that reviewers told Blueacorn's management that they saw fraud that the automated checks did not detect, but that Blueacorn management took no action: "They told us to keep pushing everything through."

Specifically, the supervisor explained that Blueacorn reviewers were told to approve applications even when "the formatting of the bank statements was just off," and that reviewers were told not to reject applications even when their experience indicated that the applications were likely fraudulent. They said: "We learned to notice when the bank statements looked off and were just pulling info from another company's bank statement." The supervisor told Select Subcommittee staff that their staff were instructed to approve applications that "just didn't look right."

A non-supervisory former Blueacorn application reviewer—who also spoke with Select Subcommittee staff on condition of anonymity—raised similar issues as those highlighted in the SBA OIG complaint and relayed to Select Subcommittee staff by the former Blueacorn supervisor. The former reviewer was responsible for "trying to identify the initial levels of fraud or inaccurate information on those initial applications." However, according to the reviewer, they received little guidance from Blueacorn as to how to verify applicants' eligibility for a PPP loan:

> There were a lot of little intricacies with the program or the process that I'm not familiar with, not having worked in that industry at all. There were a lot of questions that came up constantly that we'd try to reach out to get answered, and just very seldom could we get an answer. We were told that the rules were constantly changing on what was and was not ok.

The reviewer told Select Subcommittee staff that Blueacorn did little to answer reviewers' questions of whether an application was fraudulent or not. The reviewer stated: "Sometimes questions would get answered, sometimes they wouldn't. Sometimes they would just reference a document and say hey it's in there read it to find the answer to your question."

Another non-supervisory former Blueacorn PPP loan reviewer who also spoke to Select Subcommittee staff on condition of anonymity stated that they also had concerns about Blueacorn's PPP loan review process. This reviewer said that untrained and newly hired Blueacorn PPP loan reviewers would ask each other whether applications appeared fraudulent. The reviewer told Select Subcommittee staff: "On a Slack group chat, people would ask whether something looked fraudulent to anyone else, and people would either say 'I don't know, looks fine to me' or 'I don't know, that looks crazy, send it to fraud.'" This informal process was apparently used to determine which PPP applications would be approved and moved forward in the process and which PPP applications would be flagged for potential fraud.

Despite their inexperience, reviewers noted that some applications appeared to be fraudulent. One former reviewer stated that they saw suspicious applications with "the same backgrounds on ID pictures or something that looked like a stock photo." The reviewer told Select Subcommittee staff that, in response to questions on how to deal with apparent fraud, Blueacorn leaderships instructed: "Continue doing what you're doing. If it's outright suspicious, flag it, otherwise push it through."

In addition to concerns regarding the handling of PPP application reviews, multiple former Blueacorn PPP application reviewers told Select Subcommittee staff that they were concerned with how the company was treating sensitive PPP applicant data. A former Blueacorn reviewer told Select Subcommittee staff that Blueacorn was "not using encrypted systems when dealing with personally identifiable information such as Social Security Numbers" and that, on at least one occasion, they "accidentally download[ed] people's driver's licenses onto my [personal] computer."

**4. Internal Blueacorn Documents Show That Reviewers Were Instructed to Ignore All but "Extremely Obvious Fraud"**

The statements of former Blueacorn PPP application review staff are supported by the internal documentation used by Blueacorn to guide the individuals tasked with determining whether applicants were eligible for PPP loans. The Select Subcommittee obtained Blueacorn's PPP Processing Script, which the company used as "a training document . . . to onboard and instruct members of the Eligibility Verification team on how to process loan applications" and which served as the "primary resource for processing loans throughout the project."

In one section, the PPP Processing Script warned Blueacorn's loan reviewers that the company believed that reviewers were identifying too many fraudulent documents and flagging too many loans for additional fraud review. The PPP Processing Script informed reviewers that application review process changes were being made "in response to feedback that [reviewers] were marking too many documents as fraudulent." The document instructed Blueacorn's PPP loan application reviewers to accept loans with suspicious supporting documentation: "if you are doubtful of a document authenticity but are not certain, the rule of thumb is to accept it."

Asked why Blueacorn's "primary resource for processing loans" warned reviewers to flag fewer applications for fraud, Blueacorn attempted to blame former strategic advisor and Paynerd owner Matthew Mandell, telling the Select Subcommittee that it was "likely" Mr. Mandell who had complained that Blueacorn reviewers were identifying too many potentially fraudulent documents. The company stated that Mr. Mandell "regularly suggested to Blueacorn leadership that Blueacorn's increasingly rigorous system was too sensitive." Blueacorn claimed that Mr. Mandell was likely motivated to make these comments to maximize his personal profits since his "company [Paynerd] was compensated only for marketing leads that ripened into completed loans."

While Blueacorn blamed Mr. Mandell for suggesting that fraud controls be weakened, evidence appears to indicate that Blueacorn's leadership did not push back. On the contrary, the suggestion that PPP application reviewers apply only limited scrutiny to potentially fraudulent applications was reflected in the company's primary guidance document. Blueacorn's own revenue and the compensation of many of its executives was also tied to the number of applications that ripened into completed loans, meaning that any incentive that Mr. Mandell had to maximize the number of completed loans was also shared by the company itself.

The PPP Processing Script also instructed Blueacorn's PPP application reviewers to only flag applications with "extremely obvious fraud" and to ignore other less blatant attempts to submit fraudulent identification documents. Blueacorn PPP loan reviewers were instructed not to flag identification documents with strange font alignment, signatures in unusual places, or incorrect or missing watermarks. Instead, Blueacorn asked its reviewers to be on alert for loan applications with such extremely obvious markers of fraud as applications in the name of "Ronald McDonald" or with an address of "123 ABC Lane." Blueacorn's guidance explicitly told PPP loan reviewers not to check drivers' licenses received as part of a PPP loan application against websites with examples of genuine drivers' licenses.

Blueacorn defended its decision to instruct its reviewers not to report indicators of fraud, informing the Select Subcommittee that "individual reviewers were ill-suited to identify any but the least sophisticated fake identification documents." Blueacorn argued that other layers of review, namely an "enhanced due diligence" (which began on June 11, 2021—after the PPP program ended) and a specialized investigations team, were better equipped to identity fraud. However, Blueacorn's specialized teams only reviewed applications that were already flagged for fraud by individual reviewers or other sources, meaning that they did not effectively act as a backstop to the initial review team's work.

**5. Elev8 Advisors Encouraged PPP Loan Application Reviewers to Minimize Time Spent on Application Reviews and to Overlook Fraud Flags**

With Blueacorn's apparent encouragement, Elev8 Advisors encouraged the friends and family it hired to review applications at a pace that risked compromising the effectiveness of their reviews. Ms. Spencer pushed reviewers to get through as many applications as possible, apparently because doing so would maximize Blueacorn's and Elev8 Advisors' profits. In a Slack message obtained by the Select Subcommittee, Ms. Spencer claimed that Blueacorn's Chief Operating Officer, Mr. Yahes, instructed her to "do nothing outside of making sure [eligibility reviewers] get through 5000 files a day." Blueacorn's information technology consultant responded, "oy vey, that's a lot haha." According to internal Blueacorn communications, Mr. Yahes was one of two Blueacorn employees primarily responsible for directing their eligibility verification team.

A former Elev8 Advisors contractor who conducted PPP loan reviews for Blueacorn informed Select Subcommittee staff that Elev8 Advisors' loan reviewers were told "the faster the better" and that each loan application review "should take you less than 30 seconds." In another instance, Ms. Spencer told eligibility reviewers that Blueacorn expected reviewers to complete, at a minimum, one PPP loan application review every two minutes. Elev8 Advisors also assisted Blueacorn in obtaining the services of a publicly-traded company, Business Warrior, to also conduct PPP loan verification services. In a series of emails between the President of Business Warrior and two top Blueacorn executives, Business Warrior's President stated that their loan verification staff would be able to review a PPP application in just 90 seconds and complete 40 applications per hour per reviewer. Emails obtained by the Select Subcommittee show that Blueacorn approved Business Warrior's proposal and arranged to pay the company three dollars per PPP application reviewed.

**6. Blueacorn's Automated Review Process Used Off-the-Shelf Technology That Was—on at Least One Occasion—Weakened to Ensure Higher Loan Approval Rates**

Blueacorn claimed that it "simplif[ied] the application processes" for lending programs by using "high-quality, proprietary lending software and fraud detection tools." Documents obtained by the Select Subcommittee reveal that Blueacorn largely relied on off-the-shelf fraud and KYC technology software subscriptions. According to Blueacorn, it relied on four commonly used third party software products (Plaid, Giact, Onfido, and IDology) to "help improve our risk posture and mitigate fraud." The Select Subcommittee's investigation determined that, at one point, even one of these off-the-shelf technologies was put aside to decrease the amount of potential fraud flagged and increase the number of applicants receiving loans (which, by extension, would increase Blueacorn's profits).

At the end of March 2021, Blueacorn began using IDology, a software that used an applicant's social security information to generate a list of multiple-choice questions that only the applicant should be able to answer (such as which home address in a multiple-choice list was associated with the applicant). In using this tool, Blueacorn determined that IDology questions were "quite difficult" for many PPP applicants to correctly answer and flagged a large number of applications as suspicious. Beginning in early April 2021, Blueacorn began to use Onfido as its primary method of identity verification instead of the more rigorous IDology questions or human reviews. Following Blueacorn's switch to Onfido, applicants were only directed to the IDology system if they failed Onfido or if their application was subsequently flagged as suspicious at a later point in the application process.

**7. Blueacorn Prioritized and Gave Less Scrutiny to High Value Loans and Applicants Deemed "VIPPP"**

Contrary to Congress's clear intent, the Trump Administration and many big banks failed to prioritize small businesses in underserved markets, including minority and women-owned businesses. As a result, small businesses that were truly in need of financial support during the economic crisis often faced longer waits and more obstacles to receiving PPP funding than larger, wealthier companies. The Biden-Harris Administration took steps to reach women-owned, minority-owned, low- and moderate-income, rural, and other underserved communities through the PPP. Blueacorn claimed to support this mission and stated that reaching "[t]iny businesses, self-employed individuals, and minority communities [that] are left out in the cold" was their fintech's "core mission." Despite this proclamation, information uncovered by the Select Subcommittee indicates that Blueacorn instructed its staff to prioritize—and give less scrutiny to—high dollar loans that would earn the company higher commissions.

In communications obtained by the Select Subcommittee, Blueacorn's senior leadership instructed a Blueacorn contractor to prioritize certain large dollar PPP loan applications for review and approval over small dollar PPP loans. In one such communication, Ms. Hockridge reminded Ms. Spencer, who supervised Blueacorn-contracted loan reviewers, that large dollar PPP loans were more profitable for the company:

> I mean…I don't believe in prioritizing the biggest loans over the smallest…but, there should be some understanding that as we get started…closing these monster loans will get everyone paid.

In the same message, Ms. Hockridge also suggested that Blueacorn's loan reviewers did not need to closely review a "monster loan[]" and wrote that it "will take less than 3 minutes to approve this application," assuring Ms. Spencer that the loan was "clean."

In another Slack message obtained by the Select Subcommittee, Ms. Hockridge suggested that Blueacorn loan review contractors should prioritize a high dollar PPP loan in the amount of $1.9 million. Ms. Hockridge wrote:

> I have a $1.9M deal that's been sitting in UW [underwriting] Ready for 5 DAYS!!! I don't need to tell you how much Blueacorn makes off that loan alone …

In addition to prioritizing large dollar loans over smaller loans, Blueacorn also created an exclusive category of PPP loans that were tagged with a "VIPPP" code and managed by Ms. Hockridge outside of the standard Blueacorn workflow. Ms. Hockridge appears to have been eligible to receive an additional commission for each funded VIPPP loan. Evidence obtained by the Select Subcommittee indicates that Ms. Hockridge, on multiple occasions, appeared to instruct Blueacorn loan reviewers to give loans in her VIPPP channel preferential treatment and less scrutiny.

In an email between Blueacorn and a PPP loan applicant that were posted to an internet message board, a Blueacorn employee reporting directly to Ms. Hockridge apologized for delays that the PPP applicant faced related to their PPP loan. In that email, the employee wrote, "Your loan did not come to us at VIPPP. You may have applied on the website, rather than our link for VIPPP." The employee attributed the poor service given to this PPP loan applicant to being "assigned to the regular side of Blueacorn." The employee then promised that she would "work on getting you assigned to us at VIPPP" and promised that being assigned to the special VIPPP channel would allow her to "get things moving right away."

In at least one instance, Ms. Hockridge instructed a Blueacorn application reviewer to approve large dollar "VIPPP" loans without following Blueacorn loan review procedures and without running the applications through Blueacorn's automated fraud detection software system. Representatives of a Blueacorn contractor told the Select Subcommittee:

> In May 2021, [a Blueacorn loan reviewer] was asked to assist Ms. Hockridge in reviewing these VIPPP loans. [The Blueacorn loan reviewer] informed [her supervisor] that Ms. Hockridge was asking her to prioritize and submit large loans without following protocols that [loan reviewers] had been trained to complete.

In another communication obtained by the Select Subcommittee documenting a separate incident, Ms. Hockridge instructed that Blueacorn contractors should approve a "VIPPP" PPP loan application without full review, writing: "no need to put your spot=checker [sic] on it--the file is good…just needs approval from someone other than me…since it's in my channel."

Ms. Hockridge also instructed subordinates to deprioritize non-VIPPP loans. In Slack messages obtained by the Select Subcommittee, Ms. Hockridge directed a Blueacorn loan reviewer to "delete" certain loan applications not affiliated with her VIPPP channel, including loans that were part of another channel referred to as "QWK." Referring to these loans, Ms. Hockridge wrote, "FUCK QWK," "delete them," and "who fucking cares." Blueacorn's founder made clear that the focus on approving and funding VIPPP loans meant that some non-VIPPP loans might not be funded, but that she did not care about the disruption that it would cause to regular—non VIPPP—PPP applicants. Ms. Hockridge wrote, "We're not the first bank to decline [PPP] borrowers who deserve to be funded … they go elsewehre (sic)."

**8. Blueacorn Executives Improperly Charged PPP Applicants for Loan Processing**

According to PPP program guidance, agent fees could only be paid by the lender from the fees the lender received from the SBA. PPP rules expressly prohibited loan agents from collecting fees directly from borrowers or being paid out of PPP loan proceeds. However, according to Blueacorn's primary compliance consultants, Blueacorn co-founders Mr. Reis and Ms. Hockridge requested that PPP borrowers directly pay them substantial fees out of the proceeds of their PPP loans. Representatives for the principals of Elev8 Advisors told the Select Subcommittee that Mr. Reis and Ms. Hockridge attempted to charge multiple PPP applicants a fee of up to 10 percent of the loan value for PPP application preparation and processing services, in violation of SBA rules.

Elev8 Advisors' representatives also told the Select Subcommittee that Elev8 Advisors' owners informed Blueacorn's Chief Operating Officer that Ms. Hockridge had asked PPP applicants to pay her directly for Blueacorn's PPP assistance services. The representatives of Elev8 Advisors also told the Select Subcommittee that Mr. Reis asked Elev8 Advisor's owners for payments after he helped them get a first round PPP loan approved. The Select Subcommittee could not confirm how many loans Ms. Hockridge may have improperly charged additional fees for.

**9. Blueacorn Executives Gave PPP Loans to Themselves, Their Businesses, and Their Business Associates Without Controls to Prevent Conflicts of Interest**

The Select Subcommittee's investigation revealed that individuals with senior leadership positions at Blueacorn and their close business or family associates—including those affiliated with Elev8 Advisors—received more than $650,000 in PPP loans. Of that amount, Mr. Reis, Ms. Hockridge, and companies that they owned received nearly $300,000 in PPP loans, nearly $200,000 of which came through Blueacorn or from Blueacorn's most important business partners: Prestamos and Capital Plus. A Blueacorn loan review supervisor who spoke with Select Subcommittee staff on condition of anonymity said that th— *[the source PDF text extraction ends here; the remainder of Section III, including the detailed Womply, Kabbage, and Bluevine findings and the report's conclusion, was not returned by the document-extraction service.]*

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